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Analysis: PLN restructuring paves way for subsidiary privatization

Jakarta Post - October 5, 2022

Tenggara Strategics, Jakarta – State-owned electricity company PT PLN recently formed four sub-holding companies, two that consolidate all its power generation assets, one that integrates primary energy management and one that develops services beyond electricity. The two power generation companies will share two new business entities in renewable energy, which are likely to be privatized.

The new PLN holding structure sees the establishment of two power generation companies (Genco), which are slated to become the first- and the second-biggest power generation companies in Southeast Asia. The first sub-holding converts assets of PT Pembangkitan Jawa Bali (PJB), which controls power generation and distribution across Java and Bali with an 18 Gigawatt (GW) capacity, into PLN Nusantara Power or Genco 1.

The second sub-holding consolidates assets owned by PT Indonesia Power (PTIP) with assets owned by PT PLN in the North Sumatra, South Sumatra and Kalimantan networks, with total power capacity of 21 GW, and converts them into PLN Indonesia Power or Genco 2.

PLN Nusantara Power and PLN Indonesia Power will also share two new business entities, namely Geothermal Co and New Energy Co, aimed at accelerating the clean energy transition. Geothermal Co will control geothermal power plants with 0.6 GW capacity, while New Energy Co will control solar, wind and hydro-based power plants with 3.8 GW capacity in total.

As for the third sub-holding, PLN Energi Primer Indonesia, the company consists of three subsidiaries, namely Coal Mining Company, Gas Midstream Company and Logistic Coal Company, that will secure the energy supply to produce 280,000 GW hours (GWh) of electricity a year, including from biomass for co-firing. With the sub-holding, PLN will finally see its coal supply chain, which was spread across five subsidiaries and which complicated the trouble during coal supply scarcity, converged into one. (See: What's More).

Lastly, the fourth sub-holding, PLN Icon Plus, will utilize PLN's assets to develop services beyond electricity, or "beyond kWh" as State-Owned Enterprises Minister Erick Thohir announced. The sub-holding plans to integrate internet service, PLN marketplace, electric vehicle (EV) charging and battery swaps with the New PLN Mobile Super App. This sub-holding is slated to be the first to go public.

PLN president director Darmawan Prasodjo said that with the structural changes, he hoped that PLN assets that were previously scattered would now be consolidated, that the power generation management business process would be simplified and that asset utilization that was previously inefficient would be optimized.

What's more

A coal-supply crisis has loomed over PLN multiple times this year as businesses prefer to export their coal than to meet their domestic market obligation (DMO) amid skyrocketing commodity prices. In January, there were critically low thermal coal supply levels at power stations, not enough for the minimum standard of 20 days of operation, putting 10 million households and industries across Java, Bali and beyond at the risk of blackouts.

PLN Batubara, a subsidiary of PLN, was accused of being the culprit. The government found that PLN Batubara, which is responsible for the coal trade for PLN, often signed coal-purchasing contracts via traders, instead of straight from the coal producers, causing inefficiency in PLN's costs as the price from traders was usually higher. However, some argued that the company's role was to secure types of coal required by PLN and sell other types overseas, so they had performed their duty as a coal-trading company well. Regardless, since the coal supply crisis, rumors have been circulating that Erick plans to close PLN Batubara.

What we've heard

Several sources at the SOEs Ministry explained that the formation of the PLN sub-holdings was planned by SOEs Minister Erick Thohir more than a year ago, more specifically, after Deputy SOEs Minister Pahala Mansury joined, replacing Budi Gunadi Sadikin. Pahala conceptualized the new structure. A commissioner at an SOE added that Erick's desire to strengthen PLN had increased after the coal shortage earlier this year. At that time, Erick planned to do away with some subsidiaries of PLN, namely PLN Batu Bara.

A different source explained that Erick had a secondary target, separate from the reorganization of PLN. Erick also wanted some of the sub-holdings to be able to enter capital markets. "Restructuring is a path to privatizing PLN," he said.

It is rumored that a number of sub-holdings were asked to prepare to list onto the stock exchange starting next year. The workers unions are rumored to be against the plan.

Through this restructuring, PLN Nusantara Power, which used to be known as PT Pembangkitan Jawa Bali (PJB), will be assigned the management of 18 GW power plants. Meanwhile, PLN Indonesia Power will manage powerplants with a capacity of 21 GW.

An insider at PLN added that its management was in the middle of transferring assets to several sub-holdings to be their core business. "Many assets currently in PLN should be separated to several different business units," said the source.

As a result, there will be some business overlap. These overlapping businesses will be most apparent with coal. There is PLN Batubara, which oversees auctioning to trading. Then there is the logistics of coal procurement at the central PLN. Currently, they are busy evaluating sub-holding assets. Erick Thohir wants all reorganizations to be done by next year before any sub-holdings enter the capital market.

The plan to enter the stock exchange has been prepared as a strategy to seek funding for PLN's green energy projects, especially with coal being banned after 2030. In the midst of green financing, PLN is struggling to gain funding if it keeps relying on coal. Presidential Regulation (Perpres) No. 112/2022 on renewable energy, which was recently issued, pushes PLN to accelerate its energy transition plans. PLN hopes to include its geothermal assets into its green energy portfolio as soon as possible.

Other sources in the SOEs Ministry added that there was a previous attempt to combine PLN's geothermal assets under the authority of Pertamina Geothermal (PGE). However, this venture fell through. Aside from being opposed by PLN's workers unions, PLN and PGE could not come to an agreement on how to split the assets. In the eyes of PGE, the value of PLN's geothermal assets were low due to their age. Meanwhile, PLN wanted its transmission and distribution networks to be included in the valuation.

For the businesses who regularly work with PLN, this restructuring could potentially cut bureaucracy.

"If Indonesia Power or Pembangkit Jawa Bali wants new investors, then currently they need permission from central PLN," said one of the businessmen.

However, when looking at the names of the president directors for the sub-holdings, he noticed that they were all close to PLN president director Darmawan Prasodjo.

"They're all people who have been brought by Darmo to meetings with parliament for PLN duties," said the businessman.

Source: https://www.thejakartapost.com/opinion/2022/10/05/analysis-pln-restructuring-paves-way-for-subsidiary-privatization.htm